Private Placements

Bad Actor Disqualification And Just How Do You Know Whether A Violation is Scienter-Based?

In a recently issued Compliance & Disclosure Interpretation (Question #260.21), the SEC staff unequivocally stated that “bad actor” disqualification under Rule 506(d)(1)(v) is “triggered only by orders to cease and desist from violations of scienter-based provisions of the federal securities laws, including scienter-based rules.”  In Kid, Did You Ever Go To Court?, I questioned whether the list of scienter based-based securities laws and Read more...


“Kid, Did You Ever Go To Court?”

In a recently issued Compliance & Disclosure Interpretation (Question #260.21), the SEC staff unequivocally stated that disqualification under Rule 506(d)(1)(v) is “triggered only by orders to cease and desist from violations of scienter-based provisions of the federal securities laws, including scienter-based rules.”  Quick, list all of the scienter-based federal securities laws and rules.  I can’t.  If there’s a list out there, I Read more...


New Rule 506 C&DI’s Require Some Explaining

Nancy Wojtas, the head of the public companies group at Cooley LLP, alerted me to the fact that the SEC staff yesterday issued 14 new Compliance & Disclosure Interpretations (C&DIs) relating to Rule 506 under Regulation D.  Here’s my take on three of them. Question 260.15 Question: If a placement agent or one of its covered control persons, such as an executive officer Read more...


Just Who Is A Promoter And Why You May Want To Know

The California General Corporation Law uses, but does not define, the term “promoter”.  For example, a promoter can be criminally prosecuted.  Corporations Code Section 2251 provides that any promoter “who knowingly and willfully issues or consents to the issuance of certificates for certificated securities, or initial transaction statements or written statements for uncertificated securities, in violation of this division with Read more...


Questions About Third-Party Confirmations Of Accredited Investor Status

Countless memoranda and alerts have been issued about the SEC’s adoption of rule amendments eliminating the prohibition against general solicitation and general advertising in Rule 506 and Rule 144A offerings.  Congress ordered the SEC to adopt these amendments as part of the Jumpstart Our Business Startups Act, or JOBS Act.   Issuers that wish to engage in general solicitation take “reasonable steps” to verify the accredited Read more...


Should There Be “Bad Actor” Risk Factor?

I’ve devoted several recent posts to the Securities and Exchange Commission’s new “bad actor” rule because it is awash with a sea of troubles for issuers, both private and publicly traded.    The rule prevents issuers from relying on Rule 506 if they are or have been subject to any of a long list of disqualifying events.  The rule, however, Read more...


SEC’s Bad Actor Rules Roil Opinion Practice

The SEC’s bad actor rules are causing a great deal of consternation amongst lawyers who are being asked to give opinions that the offer and sale of securities do not require registration under the Securities Act of 1933.  Historically, these opinions were usually based (albeit not always explicitly) on the non-exclusive safe harbor of Rule 506.  The addition of bad actor disqualification in new Rule Read more...


Will Issuers Add Rule 506(d) Bad Acts To The Definition Of “Cause”?

The SEC’s new bad actor rule, Rule 506(d), may cause some issuers to consider expanding the definition of “cause” in their employment agreements with executive officers. Because executive employment agreements typically reduce severance payments significantly in the case of “for cause” terminations, the definition of “cause” is often hotly negotiated. While “cause” definitions often include conviction of a felony or Read more...


If One Bad Actor SpoilsThe Whole Barrel, What’s An Issuer To Do?

The Jackson Five had it wrong.  Under the SEC’s recently adopted Rule 506(d), one bad actor can indeed spoil the whole bunch.  To some extent issuers can exercise some control over who becomes or remains a covered persons.  However, an issuer may not be able to rid itself of all bad actors.  For example, the SEC has included within the category of Read more...


Involuntary Stock Exchange Listings, Affiliated Issuers And Produce

Involuntary Listings A few days ago, Broc Romanek wrote that a number of companies have received letters from the St. Petersburg (Russia) Stock Exchange stating that the exchange is in the process of unilaterally listing the company’s securities.  This reminded me of my own blog post discussing whether a secondary options market could be created in an issuer’s securities without the issuer’s consent.  Read more...